Reviving energy subsidies would distort markets, raise costs, and slow innovation, undermining efforts to build a more efficient, reliable, and competitive US energy system.

Some in Congress are pushing to revive energy subsidies phased out under the One Big Beautiful Bill Act (OBBBA), including efforts to reinstate many of the energy tax credits expanded under the Inflation Reduction Act. 

These proposals focus largely on promoting subsidies for wind and solar electricity generation and “green” energy manufacturing, particularly by restoring the production and investment tax credits. These two subsidies alone steered capital toward wind and solar and away from oil and gas at the cost of at least $70 billion in taxpayer dollars per year.

Supporters argue that reinstating these subsidies would create “a stable foundation for long-term American growth.” But it rests on a flawed premise: that government direction produces more energy abundance than innovation and competition.

Energy Subsidies Distort Markets and Undermine Competition

Energy markets work because they reward efficiency, reliability, and innovation. When left to function, they allocate capital toward the technologies and firms that deliver the most value to consumers at the most affordable rate. Subsidies short-circuit that process. Instead of allowing better energy sources to outcompete alternatives, energy subsidies prop up industries that cannot compete on their own merits.

Subsidies for intermittent energy sources like wind and solar distort wholesale power markets and undermine grid reliability. By encouraging overinvestment in wind and solar, policymakers create a system that is more likely to fail as demand for energy increases. 

Restoring energy subsidies also will not reduce costs. It redistributes them. Taxpayers fund subsidies upfront, while ratepayers absorb higher electricity bills than they otherwise would pay as markets become less efficient and infrastructure costs rise. 

More importantly, subsidies weaken the incentive for firms to control costs and innovate. In a competitive marketplace, firms must lower costs and improve performance to remain competitive. Subsidies disrupt those price signals. 

When producers can rely on guaranteed tax credits or government-created demand, firms face less pressure to lower costs because a portion of their revenue is effectively guaranteed. Capital is misallocated, leading to overbuilding in some areas and shortages in others. Over time, this raises the overall cost of delivering energy and hinders innovation. This dynamic is especially clear in subsidized technologies such as electric vehicles (EVs). 

When government incentives artificially lowered the price paid by consumers, manufacturers did not face the same urgency to cut costs. After the OBBBA removed the tax credits for EV purchases, EVs’ range and price point improved for consumers. EV lithium-ion battery pack prices have fallen roughly eight percent on average. At the same time, data shows that the listing price of new EVs declined by more than 12 percent after the expanded tax credits were removed. EVs’ range is up by 30 miles from the 2025 to 2026 models, and the time it takes to add 100 miles of range is down to around 15 minutes for the average 2026 model.

This is how energy markets are supposed to work. Firms compete, costs fall, and better energy sources win. Subsidies interfere with that process by insulating producers from competition and passing cost increases to American families and businesses through higher taxes and increased energy costs.  

Restoring Energy Subsidies Risks Higher Costs and Less Innovation 

Restoring energy subsidies would move US energy policy in the wrong direction. It would reward special interests over innovation and entrench a system in which industries seek government support rather than compete to deliver better outcomes.

A more sustainable path forward is to encourage free enterprise. That means continuing to phase out all energy subsidies, removing barriers to domestic energy production, and ensuring that all energy sources compete on a level playing field. When markets are allowed to function, they identify and promote the most efficient, reliable, and cost-effective energy sources.

The goal should be to encourage an energy system that delivers affordable, reliable power to American families and businesses. Free enterprise has consistently delivered that outcome. Government handouts have not.

About the Author: Sarah Wagoner

Sarah Wagoner is a policy analyst in Environmental and Energy Policy at The Heritage Foundation. Prior to joining Heritage, she was a research assistant at the Economic Policy Innovation Center (EPIC) and a Master’s research fellow at the Mercatus Center. Her work has focused on economic, energy, and regulatory policy areas, and she has been published in media outlets including The Center Square. Wagoner holds a Master of Arts in Economics from George Mason University, along with a Bachelor of Arts in Economics and History from Hillsdale College.